Horizon partner take over, page-19

Wanga - and they will be renegotiating that facility with the oil price having fallen 40% or thereabouts. I think you are hoping irrationally if you think they will be getting better terms on that basis. Sure HZN are telling us that they are being offered great terms, if thats the case why appoint Nomura to look at strategic alternatives for PNG? Also bear in mind HZN told us they would have Stanley on production in 2015 less than a year ago. They have consistently over promised and under delivered.

So while it may be clear to you that they are going to get a great deal, it is clear to me that they are short of cash, the market and most of the analysts think the same.

As I have consistently said the assets are good quality and I suspect together with the hedging there is no problem with their senior facility, the issue is the convertible notes. It is abundantly clear that they will not accrue enough cash to pay out the notes and new senior lenders are going to have significant questions about how the notes will be paid out or restructured before lending them more money. I completely disagree that there is anything like enough collateral at the moment to refinance senior debt (senior lenders will not look at any unfunded resources for collateral), pursue their capital and exploration plans (particularly around Ketu/Elevala/Tingu) and repay the notes - probably $400m all up. Something will have to give and most likely that is the notes, meaning they will be restructured and I would estimate it will be at a significantly reduced strike price, possibly in the mid 20s. Given HZNs current market cap that will be significant dilution and cause further damaged to the equity story which has been frankly sad for the past 12 months. Alternative is HZN will have to raise equity to payout the notes - or some combination of both.

If you think debt market conditions are benign for small oil and gas companies I strongly recommend you spend some time perusing the Financial Times. Could save you a lot of money.